Top 5 Operations KPIs (Metrics)

Top 5 Operations KPIs (Metrics)

I was asked to write some articles on my top 5 Metric/KPI recommendations for various business functions. Here are my “Top 5 Operations KPIs”.

(Note: I use the terms Metrics and KPIs interchangeably – but prefer to use Metrics these days in an effort to reduce the use of 3 letter acronyms).

If you’re new to Metrics, I recommend taking a quick read of some of my previous articles first:

Operations metrics are really where I see the most variation in my clients. Your operations metrics really do depend on your industry. For example, manufacturing operations are very different from Software as a Service operations. Every business model is different and you need to choose the right metrics that drive the performance of your Operations team, but here is a list of 5 generic metrics that are commonly used by my clients, and a brief explanation of each:

1. Labor utilization

The percentage of available hours for work “billable” to product or service delivery compared to the actual hours spent on that work, is key to the efficiency and financial viability of your business model. 

2. Project Schedule Variance (PSV)

PSV is a comparison of the budgeted number of days to complete Work in Progress vs. the actual number of days taken. If PSV is zero then the project was completed on time; if PSV is positive it shows an overrun (we took more days than budgeted). If the variance is negative it means we completed the projects ahead of schedule. Variances can highlight inaccurate budgeting and planning, or inefficient execution of the work. 

3. Delivery In Full On Time (DIFOT)

DIFOT is the percentage of deliveries that were received by your customers, in full, and on time, over the period. Providing the right product or service in the agreed time frame is a key driver of operational excellence and customer satisfaction. 

4. Rework

This is the number of hours spent, or the cost of fixing mistakes, or redoing work that was rejected (internally or externally). Correcting work that should have been done right the first time can incur significant costs to the business in terms of time or materials. This quality metric also helps to drive operational excellence and customer satisfaction. 

5. Complaints / Reported Issues / Support Tickets.

This is a simple count of the total number of complaints/issues/support tickets that are received over a given time period. If you see this number spike upwards, it signals an urgent need to investigate and address the cause.

This is another metric that measures the quality of our product or service. This metric is also one of the key customer service KPIs. We can pick up an increase in the number of complaints much earlier than we can detect a deterioration in customer satisfaction survey scores or client retention metrics. This lead indicator enables us to respond quickly. 

***

Of course, there are many other Operations Metrics that you could consider, but these five common ones should give you a good start point for discussion.

Regardless of which Metrics you choose to measure, it is vital that your team meets every week to discuss performance.

There is a saying, “You can only manage what you measure, and what gets measured, gets done”.

I disagree with this statement. Just measuring the numbers will not deliver the outcomes you are looking for. I see plenty of companies who measure the right things, but they still don’t get the results they want, because they fail to meet to discuss performance every week, and they fail to hold people accountable for achieving the agreed standards.

You need to run effective meetings. Every week. Without fail. And you need to hold people accountable.

I have my own saying which I think captures it better: “Successful Business Execution is 20% giving people clarity about what needs to be done, and 80% following up to make sure it actually gets done”

***

Until next time…
Stephen

Previous Posts